KARACHI: The Securities and Exchange Commission of Pakistan (SECP) has relaxed the rules for brokers to verify the eligibility of accredited individual investors for the Growth Enterprise Market (GEM) board, a dedicated counter within the Pakistan Stock Exchange (PSX) for smaller and riskier companies.

This move is aimed at developing the GEM market and generating trade volumes in the stocks listed on the newly created counter of the PSX.

The accredited individual investors are required to have assets of Rs5 million — as oppo­sed to the previous requirement of “net assets” — including but not limited to the value of the securities held in their respective Cen­tral Depository Company (CDC) acco­unts, sub-accounts or any other criteria specified by the PSX.

These SECP-approved amendments to the PSX regulations regarding accredited investors became effective from April 1, according to a PSX notice.

Investors are now required to submit self-declaration in hard form, electronically, confirmed via any application that can be maintained as a log, any other recognised social media platform or simply agreeing to the self-declaration window by accepting/check-marking/acknowledging, the notice said.

So far, two companies have been listed on the GEM board. These shares have attracted low trade volumes since their listings towards the end of 2021. Brokers attributed the subdued activity in these shares to the regulator’s now-abolished requirement that only institutions or accredited individual investors with “net assets” of at least Rs5m could trade on the GEM counter.

After the change in the eligibility criteria, investors’ self-declaration will be sufficient as a verifiable means to trade shares on the GEM board. The third GEM listing will take place next week.

Under the changed regulations, the broker will have to explain the associated risks of GEM-listed securities to the investor. Separately, the self-declaration by the investor must clearly state that they understand the GEM-associated risks.

Published in Dawn, April 9th, 2022

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